Analyst Picks and Pans: AKS, GTI, X, RHT, AMN

AK Steel Holding Corp. (AKS)

Graftech International Ltd. (GTI)

U.S. Steel Corp. (X)

KeyBanc Capital Markets cuts estimates

A KeyBanc Capital Markets analyst cut his earnings estimates for several steel makers on Mar. 26, saying demand has remained low in March, though he believes profits could improve later this year.

"Early 2009 is shaping up to be more subdued as end-demand momentum remained tempered through March," wrote analyst Mark Parr in a note to investors. Parr said profitability in the first and second quarters is unlikely due to the credit crisis, depressed pricing and higher cost inventories, "each of which has remained in place through March and will not likely significantly abate" before the end of the second quarter.

"Conversely, the industry has kept its focus on supply discipline over and above the demand destruction imposed by the credit miasma, supporting ongoing inventory de-stocking for both service centers and end users," he said.

His revised outlooks imply that first quarter earnings could "mark a trough" from which quarterly earnings could improve later this year, he said. However, visibility remains "well below normal," he said.

Parr said recovery in the sector depends heavily on increased auto production. The federal government's Term Asset-Backed Lending Facility is aimed at freeing up credit to increase consumer access to car loans, he said. In addition, he said scrap market prices could react quickly to an increase in demand, "serving as a good leading indicator for steel pricing." He also said steel share prices have risen "despite any improvement in industry fundamentals."

Parr slashed his 2009 earnings per share estimates for AK Steel Holding Corp. (AKS) to a loss of $0.40 per share from a profit of $0.80 per share. He reduced his 2009 estimate for Graftech International Ltd. (GTI) to $0.65 per share from $0.80 per share and cut his 2009 estimate for U.S. Steel Corp. (X) to a $3.45 per share loss from a $1.70-per-share profit.

He left unchanged his 2009 estimate of $1 per share for Nucor Corp. (NUE).

Red Hat Inc. (RHT)

Piper Jaffray reiterates buy

Piper Jaffray analyst Mark Murphy said Red Hat reported $0.22 fourth-quarter adjusted non-GAAP EPS on an 18% revenue rise; Wall Street was looking for $0.20. Murphy said deal metrics were impressive despite a tougher selling environment and forex headwinds.

The analyst noted specifically that Red Hat closed a record 100-plus deals greater than $250,000 and 18 $1 million-plus deals vs. 14 last quarter, and renewed all top 25 deals in the fourth quarter at 132% of prior year's value. Murphy said these metrics support his thesis that Red Hat gaining market share in this downturn.

The analyst adjusted his $0.60 fiscal 2010 (Feb.) EPS estimate to $0.59 to reflect company guidance, and set his fiscal 2011 forecast at $0.65. Murphy also reiterated his $22 price target.

Ameron International Corp. (AMN)

Boenning & Scattergood upgrades to outperform from market perform

Boenning & Scattergood analyst Ryan M. Connors upgraded his rating on shares of the maker of water-transmission lines because their price has fallen to an appealing level.

"Ameron has an 'early cycle' portfolio that could rebound rapidly in a recovery, and current levels offer a compelling entry point for long-term oriented investors," he wrote in a Mar. 26 client note.

"Although Ameron is battling stiff macro headwinds and earnings momentum will likely remain negative through 2009, the company's sound financial position will enable it to weather the downturn," Connors wrote.

Besides upgrading the stock, the analyst cut his earnings-per-share estimate for this year to $1.50 from $3, which remains the average expectation of many analysts, according to Thomson Reuters.

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